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Sunton Manufacturing in Cambodia

Exit or Remain

de Celis Arias Marta │ Díaz Mena Kem Jian │ Pfister René │ Santamaría Rigg María Isabel
OVERVIEW QUESTIONS
Sunton Manufacturing

1 2
What motivated Tony Wu to set up a How has Sunton’s investment
factory in Cambodia? As an advisor to performed in Cambodia? Was the
the company, where would you have timing of Sunton’s investment in
suggested Sunton to go? Cambodia too soon, too late, or just
right?

3 What has Sunton done to proceed with 4


the process of internationalization?
Are there other options besides Assess Sunton’s partner selection
establishing a second factory in process.
Cambodia to improve
internationalization?

2
MOTIVATION CAMBODIA
1
Sunton Manufacturing

Leaving China Expansion Cambodia

Suggestion of a friend – SEZ Sihanoukville,


Shrinking size of Chinese Factories
run by Chinese enterprise

Exchange rate reform and subsequent


Low labor and material cost
appreciation of renminbi

Favorable trade conditions with major


Rising wages in Chinese clothing market
industrialized countries → no tariffs
$491

$227 $208 $182


$163 $122 $120
$102 $102 $96
Tight control over supply chain improves
efficiency and thus competitiveness

Source: International Labour Organization, 2016 3


SUGGESTION COUNTRY
1
Sunton Manufacturing

Suggested Country: Indonesia

Labor cost Wages only marginally higher than in


Labor skills Cambodia
Corporate tax $491

Strategic Currency risk $227 $208 $182 $163


$122 $120 $102 $102 $96
comparison Property cost
Electricity prices
Ease of doing business
Legislation
Productivity exponentially higher & more
Political stability
developed infrastructure
Market openness
$8'178
Control of corruption
$4'646 $4'149
Government’s effectiveness
$1'848 $1'783 $1'741

Thailand Philippines Indonesia Cambodia India Vietnam

Source: International Labour Organization, 2016 4


SUNTON’S PERFORMANCE IN CAMBODIA
2
Sunton Manufacturing

Passive and trustful attitude


during the whole process

Why? Partner selection

Lack of research
Sunton’s investment
did not perform well

5
TIMING OF SUNTON’S INVESTMENT
2
Sunton Manufacturing

2015: Dozens of garment


factories have gone bankrupt

Why? Best locations for a factory

He arrived in Cambodia
without knowing the proper Quality of work ethic and laws
Too soon! information

Source: CISION PR Newswire, 2016 6


INTERNATIONALIZATION PROCESS
3 Sunton Manufacturing

Join Venture
1
in Cambodia
Exports UE

4
2
Foreign direct Potential further
Subsidiary in Italy scenario: Acquisition
investment or Merge

7
OTHER OPTIONS BESIDES CAMBODIA
3 Sunton Manufacturing

Europe Clothing Industry Import Participation 2018, by country Total value of clothing imports by the United States from 2011 to 2019 (in
million U.S. dollars)
Others (15 countries)
9%
100'000
Czech Republic
2% Portugal
2%
97'500 97'000
Sweden Germany
3% 22%
Denmark 95'000
3% 95'000

93'164
Austria 92'500 92'000
4%
91'028 91'000
Poland
5% 90'000
France 88'584
Belgium 14% 87'957 88'000
5% 87'500

Italy
10% 85'000
Spain
11%
Netherlands
10% 82'500
2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Statista 8
4 ASSESS SUNTON’S PARTNER SELECTION PROCESS.

When?

Partner selection
Why? How?
process

Who?

9
4 PARTNER SELECTION PROCESS

Ideal selection process


Wu’s selection process

Clearly define and validate your market

Starts the project

Develop partner selection criteria

Finds the need of a


partner

Identify and prioritize partner candidates

Friend’s
recommendation
Recruitment calls and due diligence

Partner’s signature Negotiate partner agreement and alliance


plan

Source: Kauffman Entrepreneur, 2006 10


Thank You!
Questions?
APPENDIX 1
Systematic Comparison (1/3)
Systematic comparison

Government's effectivenes
Ease of doing business
The "white issue" is

Control of corruption
0 = less important

Market openness

Electricity Prices
1 = equally important

Political stability

Corporate Tax

Currency Risk
Property Cost
2 = more important

Labor Skills
Legislation
Labor Cost
than the "grey" issue

1 2 3 4 5 6 7 8 9 10 11 12

Ease of doing business 1 2 1 2 1 1 0 0 0 0 0 0 7


Market openness 2 0 1 1 1 1 0 0 0 0 0 0 4
Control of corruption 3 1 1 1 0 0 0 0 0 0 0 0 3
Government's effectivenes 4 0 1 1 1 0 0 0 0 0 0 0 3
Political stability 5 1 1 2 1 1 0 0 0 0 0 0 6
Legislation 6 1 1 2 2 1 0 0 0 0 0 0 7
Labor Cost 7 2 2 2 2 2 2 2 2 1 2 2 21
Property Cost 8 2 2 2 2 2 2 0 0 1 1 1 15
Corporate Tax 9 2 2 2 2 2 2 0 2 1 1 2 18
Labor Skills 10 2 2 2 2 2 2 1 1 1 2 2 19
Currency Risk 11 2 2 2 2 2 2 0 1 1 0 2 16
Electricity Prices 12 2 2 2 2 2 2 0 1 0 0 0 13

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APPENDIX 2
Systematic Comparison (2/3)

China Cambodia Vietnam Lao PDR Thailand Myanmar Malaysia Indonesia Philippines
Ease of doing business (rank) 78 131 82 139 46 170 23 91 99
1 Ease of doing business (points) 64.28 54.79 63.83 53.29 72.53 44.56 78.11 61.52 60.4
Strategic Comparison 6.29 3.74 6.17 3.34 8.50 1.00 10.00 5.55 5.25
Market openness (%) 53.09 48.85 47.42 41.87 51.33 43.73 51.83 50.26 44.31
2
Strategic Comparison 10.00 6.60 5.45 1.00 8.59 2.49 8.99 7.73 2.96
Control of corruption 49 8 42 15 41 31 62 43 34
3
Strategic Comparison 7.83 1.00 6.67 2.17 6.50 4.83 10.00 6.83 5.33
Government’s effectiveness 68 25 53 39 66 16 76 53 52
4
Strategic Comparison 8.80 2.35 6.55 4.45 8.50 1.00 10.00 6.55 6.40
Political stability 27 52 51 62 16 23 50 33 10
5
Strategic Comparison 3.94 8.27 8.10 10.00 2.04 3.25 7.92 4.98 1.00
Legislation 46 13 57 24 55 17 71 39 37
6
Strategic Comparison 6.12 1.00 7.83 2.71 7.52 1.62 10.00 5.03 4.72
Labor Cost (USD per month, manufacturing) 491 96 182 102 227 n.a. 422 122 208
7
Strategic Comparison 1.00 10.00 8.04 9.86 7.02 1.00 2.57 9.41 7.45
Property Cost (Price per sqm) 11829 2913 2280 n.a. 5266 n.a. 6450 2595 3952
8
Strategic Comparison 1.00 8.40 9.00 1.00 7.19 1.00 6.07 9.70 8.42
Corporate Tax 0.25 0.2 0.2 0.24 0.2 0.25 0.25 0.25 0.3
9
Strategic Comparison 5.50 10.00 10.00 6.40 10.00 5.50 5.50 5.50 1.00
Labor Skills (Global Competitiveness Report) 4.83 4.01 4.11 4 4.52 n.a. 5.06 4.74 4.35
10
Strategic Comparison 8.05 1.08 1.93 1.00 5.42 1.00 10.00 7.28 3.97
Currency Risk (Transfer Risk, Currency Inconvertability) 2 1 4 6 3 6 3 3 3
11
Strategic Comparison 8.20 10.00 4.60 1.00 6.40 1.00 6.40 6.40 6.40
Electricity Prices 0.08 0.15 0.08 0.06 0.13 0.05 0.06 0.1 0.18
12
Strategic Comparison 7.92 3.08 7.92 9.31 4.46 10.00 9.31 6.54 1.00

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APPENDIX 3
Systematic Comparison (3/3)

Decision Matrix

Country selection
Goal s: China Cambodia Vietnam Lao PDR Thailand Myanmar Malaysia Indonesia Philippines
W V VxW V VxW V VxW V VxW V VxW V VxW V VxW V VxW V VxW

1. Ease of doing business 7 6 44.0 4 26.2 6 43.2 3 23.4 9 59.5 1 7.0 10 70.0 6 38.8 5 36.7

2. Market openness 4 10 40.0 7 26.4 5 21.8 1 4.0 9 34.4 2 10.0 9 36.0 8 30.9 3 11.8

3. Control of corruption 3 8 23.5 1 3.0 7 20.0 2 6.5 7 19.5 5 14.5 10 30.0 7 20.5 5 16.0

4. Government's effectivenes 3 9 26.4 2 7.1 7 19.7 4 13.4 9 25.5 1 3.0 10 30.0 7 19.7 6 19.2

5. Political stability 6 4 23.7 8 49.6 8 48.6 10 60.0 2 12.2 3 19.5 8 47.5 5 29.9 1 6.0

6. Legislation 7 6 42.8 1 7.0 8 54.8 3 18.9 8 52.6 2 11.3 10 70.0 5 35.2 5 33.1

7. Labor Cost 21 1 21.0 10 210.0 8 168.9 10 207.1 7 147.3 1 21.0 3 54.0 9 197.6 7 156.4

8. Property Cost 15 1 15.0 8 126.1 9 135.0 1 15.0 7 107.8 1 15.0 6 91.0 10 145.5 8 126.4

9. Corporate Tax 18 6 99.0 10 180.0 10 180.0 6 115.2 10 180.0 6 99.0 6 99.0 6 99.0 1 18.0

10. Labor Skills 19 8 152.9 1 20.6 2 36.7 1 19.0 5 102.9 1 19.0 10 190.0 7 138.4 4 75.5

11. Currency Risk 16 8 131.2 10 160.0 5 73.6 1 16.0 6 102.4 1 16.0 6 102.4 6 102.4 6 102.4

12. Electricity Prices 13 8 103.0 3 40.0 8 103.0 9 121.0 4 58.0 10 130.0 9 121.0 7 85.0 1 13.0

Sum: 75 722. 5 66 855. 9 82 905. 2 52 619. 5 82 902. 1 34 365. 3 97 941. 0 82 942. 9 54 614. 5

W = Weighting
V = Value Value 10 points maximum

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SOURCES
Sunton Manufacturing

Deloitte. (2017). Corporate Tax Rates 2013-2017. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-


tax-rates-2013-2017.pdf
FRBS. (2005). FRBSF Economic Letter. Retrieved from https://www.frbsf.org/economic-research/publications/economic-letter/2005/september/a-look-at-
china-new-exchange-rate-regime/#:~:text=On%20July%2021%2C%202005%2C%20after,of%20the%20exchange%20rate%20regime.
Global Property Guide. (n.a.). Square Metre Prices in Asia. Retrieved from https://www.globalpropertyguide.com/Asia/square-meter-prices
GlobalPetrolPrices.com. (2020). Electricity Prices. Retrieved from https://www.globalpetrolprices.com/electricity_prices/
International Labour Organization . (2016). Wages and productivity in the garment sector in Asia and the Pacific and the Arab States. Retrieved from
https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/publication/wcms_534289.pdf
International Labour Organization. (2016). Wages and productivity in the garment sector in Asia and the Pacific and the Arab States. Retrieved from
https://www.ilo.org/asia/publications/WCMS_534289/lang--en/index.htm
the Global Economy. (2013). Transfer Risk in Asia. Retrieved from https://www.theglobaleconomy.com/rankings/transfer_risk/Asia/
UNComtrade. (2012). UNComtrade Analytics. Retrieved from https://comtrade.un.org/labs/data-explorer/
World Bank. (2016). WITS, World Integrated Trade Solution. Retrieved from
https://wits.worldbank.org/CountryProfile/en/Country/KHM/Year/LTST/Summarytext
World Bank Group. (2017). Doing Business. Retrieved from https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB17-
Report.pdf
World Economic Forum. (2013). Global Competitiveness Report. Retrieved from http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-
13.pdf
Cision (2016) Cambodia Garment Manufacturing Industry Overview. Retrieved from https://www.prnewswire.com/news-releases/cambodia-garment-
manufacturing-industry-overview-2020---in-2015-the-product-export-value-of-garments-in-cambodia-reaches-usd-6-billion---research-and-markets-
300307612.html
Kauffman Entrepreneur. (2006) Evaluating and selecting a strategic partner. Retrieved from https://www.entrepreneurship.org/articles/2006/12/evaluating-
and-selecting-a-strategic-partner

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